Walmart Strategic Analysis

IJMSS Vol.
03 Issue-12 (December, 2015) ISSN: 2321-1784

International Journal in Management and Social Science (Impact Factor- 4.358)
WALMART STORES INC. - A STRATEGIC ANALYSIS
Deba Banerjee, MBA
Abstract
Walmart Stores Inc. is one of the largest US and global corporation which is engaged in the
business of mass merchandising retailing. This paper analyzes Walmart with respect to it's external and
internal environment. PESTEL analysis reveals that Walmart's sales acts as an indicator of the US
economy. SWOT analysis of Walmart reveals that there are opportnuties for Walmart in the area of
online and global retailing. Walmart's analysis in relationship to other global retailers reveal that it had
experienced modest growth despite the global recession between 2008 and 2009.
Keywords: SWOT , PESTEL, Walmart,
Introductory Company Overview
Sam Walton started a Ben Franklin stores in Rogers, Arkansas during the sixties.Today Walmart
Stores Inc. has blossomed into top US and global retailer with a revenue of $476.29 billion and
employing 21.1 million employees in its 8970 stores. The founder Mr.Sam Walton believed in doing
things which others have not even thoght about and true to his belief Mr.Walton focussed on the
creation of an efficient distribution system and networking the Walmart stores, distribution centers and
the home office with its owned satellite. (Ghazzawi, et.a., 2014). At the heart of Walmart's business
philosophy lies Sam Walton's vision of “low cost leadership”. Walmart's distribution system and its
technological prowess turned out to be their core competences and the same had been geared to
achieve economies of scale in the supply chain and that in turn translated into the “Everyday Low Price”
on most of the merchandise which Walmart sells to its customers. With the passage of time, the US
retail industry has become increasily saturated and global expansion has become important for Walmart
from it's growth perspective. Also, sustainability has become one of Walmart's top priority.
Both the global expansion and sustainability will be discussed in more detail in later sections.
Industry Overview
The history of retailing in the US dates back to the reconstruction era of the post Civil War
period. Prior to the Civil War, there were only a few cities with the population of more than five
thousand people (Burns & Rayman, 1995), however, after that there was a shift in population from the
rural areas to urban locations owing to the process of industrialization. This shift in demographics gave
birth to the department stores. These department stores had single ownership for all the shops which
were housed under one large arch like roof with vertical columns supporting that roof and these
department stores provided the one stop shop experience (Burns & Rayman, 1995).
The early part of the twentieth century saw the rise of chain stores which rivaled the
department stores. These chain stores had a centralized office which controlled several different
identical stores spread over a given geographical area. After the Great Depression, the Discount Stores
were born. These stores were started because the buying power of the US consumer became
substantially less during the post Great Depression era and these stores were offering merchandise with
affordable prices. Finally, during the sixties mass merchandisers like Walmart, Kmart etc were born.
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IJMSS Vol.03 Issue-12 (December, 2015) ISSN: 2321-1784
“Mass Merchandisers are large self service stores with many departments that emphasize “soft goods”
(housewares, clothing and fabrics ) and staples (like Health and Beauty Aids)” (Perrault, et.al.2011).
These mass merchandisers offer “everyday low price” with low profit margins and quicker inventory
turnover.
The US retail industry is in its mature phase with cut throat competition. In 2008,the economic
recession was triggered off by the collapse of major financial institutions like Lehman Brothers, the
mortgage industry and the decrease in home values and the same had an adverse effect on every aspect
of the US economy including the retail trade. The following section shows these effects.
This section highlights the US retail trade between the years of 2006 and 2013.
According to the data retrieved from the US census (available at
http://www.census.gov/retail/index.html#mrts,), the retail sales increased from 4.2 trillion US dollars in
2006 to 5.011 trillion US dollars. The following fig.1 shows the data represented by the chart wherein
the column represents the dollars and the X-axis represents the years.
6000000
5000000
4000000
3000000
2000000
1000000
0
2006 2007 2008 2009 2010 2011 2012 2013
Fig.1
It is to be found that the dip between 2008 and 2009 caused the per cent change in the US retail
sales to be negative and this has been reresented in the following fig.2 wherein the Y-axis represents the
percent change and the X-axis represents the years 2007 through 2013.
Percent change in US retail sales
10
8
6
4
2
0
-2 2007 2008 2009 2010 2011 2012 2013
-4
-6
-8
-10
Column B
Fig.2
Percent change of Sales for Walmart
12
10
0
2007 2008 2009 2010 2011 2012 2013
Column B
Fig.3
Despite the adversity faced by the US economy and the US retail trade Walmart showed a
surprisingly positive increase in the revenues in terms of percentage chages from the previous year and
the same has been shown in Fig. 3 above. The reason for this paradox will be discussed in detail in the
economic section. The next section subsection will constitute a discussion about sociocultural and
demographic elements in the US.
External Environmental Analysis
Sociocultural and demographic Analysis:
Zukin (1998) asserts that the baby boomer generation have been instrumental in the creation of
quality consciousness amongst the consumers and the same has given rise to a quality conscious
awareness amongst the sellers of products and services. The big cities have attracted a lot of immigrants
and individuals pursuing alternative lifestyles and the same has created a demand for boutiques, art
galleries, restaurants and retail outlets. This demand have been fulfilled by retail outlets (for instance)
who cater to the diverse grocery needs of various ethnic communities. As for example, the Fiesta store
chain in Houston area caters to the grocery needs of the Hispanic / Latino individuals originating from
the Central and South America. The author suggests that the increased accessability of low income
individuals in urban public places (like restaurants, theaters, amusement parks) alongwith an increase in
migrants (and population, in general) created an exodus of an affluent class of individuals to move to
suburban areas and consequently the department stores which dominated the US retail landscape were
forced to open branches in the subburban areas. Eventually, during the sixties the department stores
(like Mervyn's and Montgomery Ward) met with their nemesis with the emergence of mass
merchandisers like Walmart / Sam's Club and Costco. The affluent individual living in the suburban areas
(and commuting to work to urban areas) had started to shop for grocery / general merchandise every
weekend in bulk from Walmart / Sam's Club / Costco thereby the sales of department stores in the
suburban areas started to decline and eventually these units were forced to shut their doors. The
warehouse / supercenter retail stores like Walmart have not only forced the suburban area department
stores to go out of business but it has also forced the sales of traditional grocery retailers to decline.
Hausman and Leibtag (2007) argue that ever since Walmart supercenters have started to sell grocery
items in 1988, shoppers (particularly, the low income individuals) have lessened their shopping trips to
Kroger and Albertsons and this resulted in decreased sales for grocery retailers like Kroger. The authors
find that the low income household members tend to shop more at Walmart than the above mentioned
stores.
According to data available in 2007, Walmart Stores Inc. had the following demographics in their
workforce: total numbers of employees amounted to 1.3 million and the employee composition in terms
of their ethnic groups were: African Americans totalled to 237000 (18.2%), Hispanics were 154000
(11.9%), Asian Americans were 42000 (3.2%), Native Americans were 15000 (1.2%). The female
employees of Walmart comprised the majority of the workforce, i.e. 826000 (63.5%) of the total 1.3
million employees. Also 256,000 (19.7%) of the total 1.3 million Walmart employees were seniors aged
over fifty five years. This Walmart employee diversity is also reflected in their senior management
positions (i.e. board of directors) wherein three members are women, two are African american and two
are Hispanic (out of a total of fifteen members).(Hemphill, 2008). The above employee composition by
race, gender and age are shown in the following figure 4.
Fig.4
The above fig.4 shows the workforce composition of Walmart by ethnicity. The following fig.5
shows the employee workforce at Walmart by gender. Walmart received several recognitions for their
diversity practices in their employee workforce (including its mentioning in the top 10 companies for
Asian Americans by Asia Enterprise. In 2003, Walmart set up a diversity office to monitor diversity
practices in terms of hiring and promoting minority employees in the company. Goals were created for
the respective management employees for training, hiring and promoting minority employees and if the
goals were not met a reduction of bonus of upto fifteen percent was implemented. (Hemphill, 2008).
Despite the diversity practices adopted by Walmart, it was sued for gender discrmination in a class
action lawsuit and the ultimate verdict went in favor of Walmart.
Fig.5
The following section consists of a macro and micro economic analysis.
Economic Analysis:
Macro-economic and Micro-economic Analysis :
Jantzen et.al. (2009) finds that Walmart sales is sluggish when the overall condition of
the US economy improves and vice versa. In particular, the authors find that Walmart sales improves
when personal income (including disposable income) in the US deteriorates (and vice versa). Also, this
study finds that the increase of jobless claims in the US corresponds to an increase in Walmart sales and
vice versa. This phenomena has been displayed in Figs. 1, 2, and 3 above. In particular, it is seen from
fig.2 and fig.3 above, as the percent change in US retail sales increased in 2010, the corresponding
Walmart retail sales percentage decreased whereas the percentage of Walmart retail sales between the
recession and post recession years of 2008 and 2009 held steady around eight percent (increase) and
the corresponding US retail sales shows a decrease of one percent and seven percent.
The following table in Fig.6 shows the US GDP per capita and the Walmart sales between 1991
and 2004. A multiple regression analysis has been performed and the results discussed.
Year US GDP per capita Walmart Revenues

1991 24405.2 32.6
1992 25493 43.88
1993 26464.8 55.48
1994 27776.6 67.34
1995 28782.2 82.49
1996 30068.2 93.62
1997 31572.7 104.85
1998 32949.2 117.95
1999 34620.9 137.63
2000 36449.9 163.83
2001 37273.6 191.3
2002 38166 217.8
2003 39677.2 244.5
2004 41921.8 256.32
Fig. 6
In the above fig.6, the US GDP/capita is in thousands of US $ and Walmart revenues in billion US
$.
The following Fig.7 displays the regression output corresponding to fig.6 above.
Regression Statistics
Multiple R 0.9864088151
R Square 0.9730023506
Adjusted R Square 0.9707525465
Standard Error 12.768825075
Observations 14
ANOVA
df SS MS F Significance F
Regression 1 70513.303 70513.303 432.48314 8.837993202E-011
Residual 12 1956.5147 163.04289
Total 13 72469.818
CoefficientsStandard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -297.85092824 20.819326 -14.30646 6.67E-009 -343.2123417817 -252.489515 -343.21234178 -252.4895147
X Variable 1 0.0131238443 0.0006311 20.796229 8.84E-011 0.0117488642 0.01449882 0.0117488642 0.0144988244
Fig. 7
The above fig 6. displays a dataset consisting of the US GDP per capita in thousand US dollars
units and Walmart revenues in billion US dollars between 1991 and 2004. The US GDP per capita is
assumed to be the independent variable or the X variable and the Walmart revenues is assumed to be
the dependent variable or the Y variable.
(http://dss.princeton.edu/training/Regression101.pdf#page=2) ). Here, the p

value corresponding to the X vaiable 1 (Fig.7 above) is 8.84/100000000000 = 0.00000000884 which is
less than 0.05 so the relationship between the US GDP /capita and Walmart revenues is statistically
significant. Also, as seen from the Fig. 7 above, R square value is 0.9730023506 which implies that 97 %
of the variance in the data given under the Walmart revenues is explained by the US GDP per capita
.(Fig.6)
Furthermore, the coefficient of correlation of the data displayed above in the Fig.6 is 0.9864088
which implies that there is a strong positive correlation between US GDP /capita and Walmart revenues
between 1991 and 2004.
The regression equation may be formulated as follows:
Walmart Revenues = -297.85092824 + 0.0131238443 * US GDP / capita
According to Hausman and Leibtag (2007), the impact of the opening of a new shopping outlet
in a given area is the difference of the consumers' expenditure before and after the opening of the new
shopping outlet assuning the utility of the consumer to be constant and the authors name this
phenomenon as the compensating variation. The authors find that the compensating variation of the
lower income individuals is higher than individuals belonging to higher income category. In other words
whenever a new shopping outlet opens up its doors in a given neighborhood, the number of shopping
visits to the new stores is higher amongst the low income individuals as compared to high income
individuals.
The following fig. 8 displays the data representing Walmart Revenues per emloyee between
Year Walmart Revenues per employee Walmart Revenues

2006 171636 308945
2007 181575 344992
2008 178241 374307
2009 191505 401204
2010 194388 408214
Pearson 0.9129335889
RSQ 0.8334477377
Interept -364462.117960717
Slope 3.9897449594
2006 and 2010 and the corresponding Walmart revenues.
Fig.8
Regression Statistics
Multiple R 0.91293359
R Square 0.83344774
Adjusted R Square 0.77793032
Standard Error 19394.3961
Observations 5
ANOVA
df SS MS F Significance F
Regression 1 5646789698.638 5.65E+009 15.012364 0.0304337269
Residual 3 1128427802.562 376142601
Total 4 6775217501.2
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Upper 95.0% Upper 95.0% Upper 95.0%
Intercept -364462.118 189121.3199784 -1.927134 0.1495863 -966330.5639764 237406.328 -966330.564 237406.32805 237407.32805 237408.32805 237409.32805
X Variable 1 3.98974496 1.0297234176 3.8745792 0.0304337 0.7127054736 7.26678445 0.712705474 7.2667844453 8.2667844453 9.2667844453 10.266784445
Fig. 9
The data displayed in the Fig.8 shows the revenues per employee at Walmart and the total
Walmart revenues between 2006 and 2010. This data has been retrieved from Multiline Retail Industry
Profile: Global (2011). The Walmart Revenues per employee between the years of 2006 and 2010 has
been assumed to be the independent variable (X variable 1 in the Fig.10 above) and the corresponding
Walmart Revenues has been assumed to be the dependent variable. As seen from the above Fig. 9, the
Pearson coefficient is 0.9129335889 which suggests that there is a strong positive correlation between
Walmart Revenues per employee and Walmart revenues. As seen from fig.9 above the value of R square
is 0.8334477377 which implies that 83 % of the variance in Walmart revenues in Fig.9 above is explained
by Walmart Revenues per employee. As seen from the fig.10, the p value corresponding to the
predictor variable Walmart revenues per employee (X variable 1) is 0.0304337 which is less than .05 and
this implies that the relationship between the Walmart Revenues per employee and walmart revenues is
statistically significant. The regression equation (Fig.9) may be formulated as:
Walmart revenues per employee = -364462.117960717 + 3.9897449594 Walmart
Revenues
The following section discusses the technology application in retail with reference to Walmart.
Technology:
Walmart is the technology leader of retail organizations in the following four aspects (Freeman
et.al., 2011):
1)Data Warehousing: Walmart has the world's largest private database which is accessible to it's
employees and partners in the supply chain (the same eliminates the cost of over or under production
by the supplier). In 1987, Walmart built the largest private satellite communication system so a to
improve the reliabilty of access to its datawarehouse. In 1991, Walmart spent an additional $4 billion to
create their own data warehouse Retail Link.
2)Data Enabled suply Chain Coordination: Walmart had been instrumental in creating a business support
system called Collaboative Planning, Forecasting and replenishment (CPFR) which has become very
popular with the supplier community and it is also an industry benchmark.
3)Product codes and bar code labels: Walmart played a leadership role in order for the retailers to be
use CPFR with the help of electronic and quantity data usage.
4)Radio Frequency ID tags: Walmart also has a leadership role in the inventory control process by being
able to track the movement of certain high dollar merchandise (like TV) from the shipment stage at
warehouse to delivery stage at its stores. This lessens the chances of the items being misplaced or
stolen.
5)E-Recruiting: Walmart alongwith Google has started an e-recruiting (alongwith an integrated testing of
the candidates) and this makes the recruitment process more efficient. The following section discusses
the Physical / Ecological impact of Walmart's business operations.
Physical/Ecological: In order for Walmart to continue to be in the low cost leadership role, it
concluded in 2005 that it needs effeciency in all aspects of its operations and so it adopted a
sustainability goal which included the following:
1)To be supplied 100 % by renewable energy

2)To create zero waste
3)To sell products that sustain the people and the environment (like organic grocery items and easily
recyclable packaging of products) (Stankeviciute et.al., 2012)
In 2009, Walmart created another sustainability goal for itself: It would built facilities which
would be 25-30 % energy efficient. Walmart Canada has some of its stores use solar power to generate
electricity. (Stankeviciute, et.al., 2012)
The consumers are becoming increasingly aware of leading a healthy lifestyle by consuming
healthy food and suppporting the cause of environmental protection. According to Lai et.al. (2010), the
National Marketing Institute in the US expects the market segment of consumers looking for
environmentally friendly products / services to be worth $845 million by this year (2015). Furthermore,
businesses are becoming proactive in response to consumers who are inclined to protect the
environment and those who lead a healthy lifestyle. Walmart has successfully reduced the Carbon
Dioxide emission by four hundred thousand tons per year. Walmart has been using hybrid trucks in its
distribution / logistics system to increase their fuel efficiency by twenty five percent.
The following section discusses about Globalization.
Globalization and Porter's model and application:
In the US and Europe the retail industry is in the mature phase of the product lifecycle
and consequently it has become increasingly challenging for retailers to expand / grow their respective
businesses in these areas and as a result of these retailers like Walmart, Tesco, Carrefour, Target, Costco
and others have opened stores in Asia, South America, Australia and elsewhere. Globally, the total value
of retail market had amounted to $1634.4 billion and this retail market had been subdivided into the
following: Americas 39.3%, Asia – Pacific 31.9 %, Europe 25.2 % and rest of the world 3.6%.
(Datamonitor, 2010)
Fig.10
As shown in Fig.10, the Americas is the largest component of the retail market with a value of
$642.31 billion, followed by Asia -Pacific at $521.37 billion and Europe at $411.68 billion. The emerging
markets of Brazil and China has been under the radar of retailers like Walmart and Carrefour. The
advent of the supercenters and clubs / warehouses in the US during the sixties have increased intense
rivalry between companies like Walmart / Sam's Clubs, Costco, Target, Kmart. Besides the price wars
between these and other mass mercahndisers / retailers, ardent efforts are made to provide superior
customer service to meet / exceed customer expectations and promoting in store / private label brands.
The following section gives an overview of the global retailers alongwith an application of the
Porter's model / five forces analysis in global retailing scenario.
Overview Global retailers:
Metro AG: Metro has it's roots in Germany. It operates in four different formats, i.e. Metro
Cash & Carry, Galeria Kaufhof, Media Markt & Saturn and Real. It has 2100 outlets in Europe, Asia and
Africa. (Datamonitor, 2010). Metro Cash & Carry primarily serves as a business intermediary catering to
the needs of restaurants,hotels, independent retailers and others. Real stores primarily sells grocery
intems like milk, cheese, meat, sausage etc in the European markets like Germany, Poland, Russia,
Ukraine and Turkey. Metro's Media Markt sells electronic products and the Galeria Kaufhof operates in
Germany and Belgium and sells sporting goods and clothing items.
Walmart Stores Inc.: It is the largest retailer in the US and the world. It originates from the US
and operates in the supercenters, clubs, neighborhood markets and discount stores. It's clubs operation
are to be found in the US and it caters to the needs of individuals and small businesses. It's International
division operates in Brazil, Argentina, Mexico, UK, China etc.
Carrefour originates in France and operates 15937 stores across Europe, asia and Latin America.
Carrefour's cssh and carry outlets cater to the needs of small business owners and Carrefour operates
cash and carry stores in Brazil, Argentina and Columbia under the brand name Promocash and
Altacadao.(Datamonitor, 2010)
Tesco Plc is a UK based grocery retailer operating in various retail store formats ranging from
Tesco extra hypermarkets, Tesco supermarkets, Tesco Metro city center stores and Tesco express
convenience sores. These stores offer primarily grocery items and non food items like electrical
merchandise. Tesco has 2715 stores in the UK.
The following sections discusses the Porter's model / five forces analysis with respect to the
above global retailers.
In his revolutionary five forces model, Micael E.Porter argues that the comprehension of the five
forces,( i.e. the threat of new entrants, the threat of substitutes, the supplier power, the buyer power
and the degree of rivalry) and their theoritical underpinnings reveal the reasons behind the profitability
in a given industry (Porter, 2008). The five forces model provide a firm / strategists a theoritical
knowledge about the anticipation and influence of competition and profitability in a given industry.
Porter (1980) further argues that competition and profitability in a given industry is only impacted by it's
(industry's) structure and profitability. The following are the five forces according to Porter and their
application to the global retailers /retailing.
Buyer Power: The buyer power has been found to be weak because customers who shop at
Walmart (for instance) prefer to buy items based on the least price and they end up buying Walmart in
store branditems like Great Value brand milk (instead of Borden brand milk) or Faded Glory brand jean
pants instead of Levi Strauss brand jean and those customers who do not want Walmart in store brand
merchandise go to other business selling different brands have very little or no impact on Walmart's
profits. So, Walmart has a strong influence on consumer shopping preferences in terms of price /
branding etc.
Supplier Power: Since Walmart, Careefour, Metro and Tesco have a wide range of suppliers and
there is a cut throat competition amongst suppliers to do business with these global retailers and their
switching cost is low, they (the global retailers) enjoy a wide range of options to procure merchandise
from a wide array of suppliers. While the dominance of these global retailers over the smaller suppliers
exist, however, it is offset by suppliers of name brands like Coca-Cola whose products are in high
demand (and they are sought after by the global retailers) and hence the supplier power has been found
to be moderate (Datamonitor, 2010).
Threat of New entrants: The entry barriers for a new retailer competing against Walmart, Tesco,
Carrefour or Metro are high because the customers are loyal to the brands (and corresponding price)
offered on products / services by them, moreover, substantial investment is required to compete with
the above retailers. Two major threats of new entrants exist in the area of speciality stores (offering is
few brands at higher prices like cosmetics stores selling Revlon products) and online retailing which is
increasingly appealing to Generation X and Generation Y market segment. . So, the threat of new
entrants has been assessed to be moderate (Datamonitor,2010).
Threat of substitutes: While there is no real threat of substitutes in retailing, the retailing
channel may pose as a threat. As for example the online retailing may pose a limted threat in terms of
products (non grocery items as for instance) and market segment (indivividuals born during the eighties
or nineties would prefere online shopping rather than individuals born during the forties or fifties). So
overall there is a moderate threat of substitutes in this industry (Datamonitor, 2010)
Degree of rivalry: The degree of rivalry amongst the leading global retailers Walmart, Carrefour,
Metro and Tesco (together these retailers enjoy about 6.7% of the global market share) is reduced by
the presence of several other retailers, however, the intensity of their rivalry is increased in online
retailing because buyers are not deterred by high switching costs. Infact, the switiching costs for the
buyers are low and so they can shop any brand from any retailer and this creates a price war on similar
product offereings. So, the degree of rivalry is found to be strong. And it is also healthy for this industry
(Datamonitor 2010, Porter, 2008).
The following section discusses the relationship of Walmart with respect to it's global and
domestic competitors.
According to Zhu et.al. (2009), Walmart and Kmart prefers to operate in markets wherein low
wages, low income, minorities, single parent families with vehicles are predominant whereas Target
prefers to operate in markets wherein high income/wages white population are predominant. The
authors find that the entry of Walmart in a given market does not affect Target's operations, however,
Kmart's operations are affected because it struggles to compete with Walmart on prices.
The following portion provides relevant information about Walmart in relation to it's global
competitors.
Year Walmart Metro Carrefour Tesco

2007 344.9 64.33 114.28 68.38
2008 374.3 67.95 120.98 75.85
2009 401.2 65.52 118.76 86.44
2010 408.2 67.25 125.34 91.27
Fig.11
The above table in Fig.11 represents the total revenues of Walmart and its competitors Metro,
Carrefour and Tesco between 2007 and 2010. The figures represent billion US dollars. In fig.12, the total
revenues are compared between Walmart, Metro, Carrefour and Tesco. In fig. 12, series 1, series 2,
series 3 and series 4 represent the years 2007, 2008, 2009 and 2010 respectively. Fig 13 represents the
percentage change in terms of gain / losses recorded by the firms between 2007 and 2010. It is
interesting to note that Walmart's revenue increased by 7.18% (between 2008 and 2009) and Tesco.
Fig.12
16
14
12
10
8 Series1
6 Series2
4 Series3
2
0
-2 Walmart Metro Carrefour Tesco
-4
-6
Fig.13
It is also interesting to note that the recession years of 2008 and 2009 adversely affected the
total revenues of Metro and Carrefour which registered decreases in revenues amounting to -3.57 %
and -1.83 % respectively.
Year Walmart Metro Carrefour Tesco

2007 8.1 3 5 8
2008 8.2 1.6 3 7.7
2009 8.6 1.5 0.7 5.7
2010 9.3 2.5 1.1 5.1
Fig.14
The fig.14 represents the return on assets percentages of Walmart, Metro, Carrefour and Tesco.
Fig. 15
The analysis of percentage change of the Return on Assets of the above firms have been shown
above in Fig.15 and it is found that Walmart registered a modest increase between 1.2% to
8.1%whereas Metro, Carrefour and Tesco were more dramatic in this rspect. . Metro registered an
incrase in its profitability of -46.6 % to 66.6%. Tesco has been suffereing in the decrease of profitability
from-3.75% to -10.52% and Carrefour also registered an increase of it's profitability between -40% to
57%.
The following section discusses the SWOT analysis of Walmart and also a scenario analysis of
Walmart.
SWOT analysis of Walmart
Strengths:Walmart's major strengths are it's distribution and information technology. As early
as 1969, Walmart computerized its distribution centers and by 1987 it became the largest private
satelleite owner (to enhance its communication between its home office, distribution center and the
retai outlets) and by 1991 it spent an additional four billion US dollars to start it's own (largest) data
warehouse known as RetailLink (Basker, 2007, Freeman et.al, 2011, Hitt et.al). Walmart's distribution
system is the other major factor of it's strength and success. Walmart had been one of the first retailers
to computerize it's distribution centers thereby reducing the labor cost in the processing of its
shipments. (Bhasker, 2007). Apart from this Walmart has a cost efficient fleet of trucks operated by
highly skilled, professional and reliable drivers. Thess core competences help Walmart leverage
competitive advantage and augments it's low cost leadership strategy and the most recent strategy
adopted by Walmart is “remix”, i.e. quicker replenishment of out of stock merchandise and restocking
its stores' shelf spaces more frequently and cost effectiively (Cassidy, 2005). Walmart Stores Inc. has
three divisions, i.e. Walmart Supercenters which offers one stop shop experience to it's customers (at
everyday low price) with a wide product assortments in grocery and non -grocery merchandise. In 2005,
Walmart srpassed Kroger as the largest grocery retailer in the United States.Walmart also operates it's
Neighborhood Markets in major US urban areas and these are Food & Drug combo stores. The Sam's
Club division of Walmart Stores Inc. caters to the needs of small business owners who buy items in bulk
and also to the upscale customers who look for look for brand names like Bose sound systems items
from electonics. (Datamonitor, 2014).
Weakness:
Walmart Stores Inc. had been sued by Betty Dukes (who was a female employee of a Walmart
store in California) for discrimination in terms of pay and promotions on the basis of gender. It had been
the largest class action civil lawsuit in the US history and it went in favor of Walmart. Drogin (2003)
performed some rigorous statistical analysis and concluded that women earn less than men in hourly
and salaried positions. The author finds that despite the fact that seventy five percent of the female
employees outperforming the male countrparts, it had been the male hourly employee making about
$1.16 per hour more than their female counterparts (on an average by the end of 2001). Women at
Walmart received 346 fewer promotions (than men) to the co- manager position and 155 fewer
promotions (than men) into the store manager position.
In 2003, Betty Dukes, a female employee of Walmart California was discriminated in terms of
her pay raises and promotion and she left Walmart and started the largest class action lawsuit against
Walmart (which Walmart won) (Bowers, 2003) but this gave impetus to some Walmart employees from
California to call a strike (which is illegal because of Walmart's policies). They striked because they
wanted fair wage rate increase. So, Walmart closed these stores in California and subsequently in
Oklahoma, Texas and Florida and terminated the striking employees. This had created a negative image
of Walmart in the media, however, Walmart reopened these stores and rehired these employees.
(Logan 2014)
Opportunities:
The opportunities for Walmart are primarily two fold, i.e. online market and international
markets. The online retail sales in the US increased from $168.1 billion to $263.3 billion in 2013
(Datamonitor, 2014) and Amazon.com is easily the number one online retailer with a focus on low price
on its products and customer shopping convenience. Subject to FAA approval, Amazon plans to use
mechanized flying drnoes to deliver products to it's customers (Donici, 2012). Walmart operates it's
online business via Walmart.com and it is the second most visited website (after Amazon) (Datamonitor,
2014). Walmart seeks to increase its international presence in the field of e-Commerce. In China,
Walmart has teamed up with Yihaodian (in 2012) to cater to the needs of an increasingly expanding
online chinese market. Walmart-Yihaodian combine offer the online chinese customers over 75000
items. In an effort to leverage it's corecompetence in distribution system, Walmart has constructed a
gigantic distribution center in central Indiana and this warehouse primarily stocks merchandise
purchased by customers via Walmart.com. So it is aptly known as the E – commerce hub. (Szakonyi,
2014).
In order to justify the expansion of Walmart's online business, a scenario analysis has been
performed in the following pages.
Scenario analysis:
Scenario : Walmart's move to increase operating expenses to expand it's online
business
Total Revenue 485.65 558.5 582.78 607.06 631.35 679.91 728.48
Cost of Revenue 365.08 363.02 349.67 333.88 473.51 611.92 327.81
Gross Profit 120.57 195.47 233.11 273.18 157.84 67.99 400.66
Operating Expenses 93.41 139.62 174.83 212.47 252.54 305.96 364.24
Operating Income 27.16 55.84975 58.278 60.70625 -94.7018 -237.969 36.42375

Fig. 16
In the above fig16., column 2 represents Walmart's total revenue for the fiscal year ending in
January, 2015 and it is $485.65 billion and the corresponding cost of revenue is $365.08 billion, the gross
profit is $120.57 billion, operating expenses is $93.41 billion and operating income is $27.16 billion.
(data has been retrieved from Walmart Financial Statements (2015) available at
http://finance.yahoo.com/q/is?s=WMT&annual)
It is assumed that Walmart will increase it's operating expenses (including general and
administrative expenses, marketing and advertising expenses etc.) primarily to increase it's online
business via Walmart.com. The following scenarios has been hypothesized.
Scenario 1: Referring to the column 3 of fig.17 above, it is seen that total revenues is assumed to
have increased by 15%,(of $485.65 billion from column 2), cost of revenues is decreased by 5% and
operating expenses is assumed to have ncreased to $139.62 billion (up from $93.41 billion), it is seen
that the gross profit increases to $195.47 billion and the corresponding operating income increases to
$55.84 billion.
Scenario 2: Referring to the column 4 above, total revenues have been assumed to have
increased by 20 %,(of $485.65 billion from column 2), cost of revenues have been asumed to have
reduced by 5%, and operating expenses have been assumed to have increased to (30% of the total
revenues) $174.83. It is seen that the gross profit increases to $233.11 billion and the corresponding
operating income income to $58.27 billion.
Scenario 3: Referring to the column 5 above, the total revenues have been assumed to have
increased by 25%(of $485.65 billion from column 2), cost of revenues have been assumed to have been
reduced by 5%, operating expenses have been assumed to have $212.47 (35% of the total revenues),
the corresponding operating income increases to $60.7 billion, gross profit increases to $273.18 billion.
Scenario 4: As seen from column 6 above, the total revenues have been assumed to have
increased by 30% (of $485. 65 billion) and it is $631.35 billion, cost of revenues have been asumed to
have increased to 75% (of $631.35 billion) to $473.51 billion, operating expenses is assumed to have
increased to 40% of the total revenues which is $252.54 billion. So it is seen that gross profit is $157.84
billion and the operating income which is a loss amounts to negative $94.7 billion.
Scenario 5: As seen from column 7, the total revenues has been assumed to have increased to
40% (of $485.65 billion) to $679.91 billion, the cost of revenues is increased to 90% of $679.91 billion
and it is $611.92 billion, the operating expenses has been assumed to have increased to $305.96 billion.
It is seen that the the gross profit decreases to $67.99 and it is also seen that the operating income
which is a loss amounts to negative $237.96billion.
Scenario 6: In this last scenario, it has been assumed that the total revenues have increased by
50% (of $485.65 billion) to $728.48 billion, cost of revenues is assumed to have been reduced to 45% (of
$728.48 billion) to $327.81 billion, operating expenses has been assumed to have increased to 50% of
$728.48 billion. It is seen that the gross rofit is $400.66 and operating income is $36.42 billion.
It is seen from the above scenario analyses that scenarios 4 & 5 generate losses of -$94.7 billion
and -$237.96 billion (and the above scenarios are also depicted in the foloowing figs.) and hence
increasing the operating expenses to 40% and 45% of the total revenues is not acceptable and therefore
scenarios 4 & 5 (above) are rejected.
Operating Income
100
50
0
1 2 3 4 5 6 7
-50
-100 Operating Income
-150
-200
-250
-300
Fig.17
Gross Profit
450
400
350
300
250
Gross Profit
200
150
100
50
0
1 2 3 4 5 6 7
Fig.18
Fig.17 and fig.18 represent the six scenarios (columns charts marked 2-7).
It can easily be seen that scenario 3 represents perhaps the most viable
scenario involving an increase in operating expenses for online business
expansion. In this scenario, net income increases to $ 60.7 billion and gross profit
increase to $273.18 billion.
Another area of opportunity for Walmart are the global markets of Brazil and China in particular.
The retail market in Brazil had grown by 4.3% in 2013 in comparison to the previous year and in China,
the retail market grew by 12 % in 2014 in comparison to the previous year. (Datamonitor, 2014). In
response to this kind of growth opportunities, Walmart has invested $450 million in Brazil to revamp the
existing stores and replacing the small and medium sized stores with large supercenters. In China,
Walmart has been making efforts to increase operational efficiency and gain price leadership.
Total Revenue 485.65 497.79125 509.9325 534.215 558.4975 577.9235
Cost of Revenue 365.08 339.5244 330.3974 396.1118 397.9372 401.588
Gross Profit 120.57 158.26685 179.5351 138.1032 160.5603 176.3355
Operating Expenses 93.41 102.751 104.6192 107.4215 109.2897 88.7395
Operating Income 27.16 55.51585 74.9159 30.6817 51.2706 87.596
operating income change % 104.402982327 34.9450652381 -59.0451426199 67.1048214408 70.8503508834
Gross profit change % 31.2655303973 13.4382215859 -23.0773258265 16.2611003945 9.8250937498
Fig. 19
Fig. 19 represents a scenario analysis of international expansion of Walmart. column 2

represents Walmart's total revenue for the fiscal year ending in January, 2015 and it is $485.65 billion
and the corresponding cost of revenue is $365.08 billion, the gross profit is $120.57 billion, operating
expenses is $93.41 billion and operating income is $27.16 billion (data has been retrived from Walmart
Financial Statements (2015) available at http://finance.yahoo.com/q/is?s=WMT&annual)
Scenario Analysis (Fig.!9): Walmart's international expansion scenarios
Scenario 1: In column 3 (fig. 19), total revenues have been assumed to increase by 2.5% of
$485.65 billion,cost of revenues has been assumed to have decreased by 7% of $365.08 billion,
operating expenses have been assumed to have increased by 10% of $93.41 billion, the gross profit has
been increased to $158.26 billion and the operating income to $55.51 billion. In terms of percent
change, the operating income changes by104.4%, the gross profit changes by 31.26 % and this has been
graphically depicted in Fig.20 and Fig.21. Scenario 1 is the most desirable scenario.
Scenario 2: In column 4 (fig.19), total revenues have been assumed to increase by 5% of $485.65
billion, cost of revenues has been assumed to have decreased by 9.5% of $365.08 billion, operating
expenses has been assumed to have increased by 12% of $93.41 billion, the gross profit is found to have
increased to $179.53 billion, the operating income increases to $74.91 billion. Operating income
changes by 34.94%, gross profit changes by 13.43%and this has been graphically depicted in Fig.20 and
Fig.21. This is the fourth most desirable scenario.
Scenario 3: In column 5 (fig.19), the total revenues has been assumed to have increased by 10%
of $485.65 billion, cost of revenues have been assumed to have increased by 8.5% of $365.08 billion,
operating expenses has been assumed to have increased by 15% of $93.41 billion, the operating income
changes to $30.68 billion, the gross profit $138.1 billion. In this scenario, the operating income percent
change is negative 59.04 %, the gross profit is negative 23.07%. This scenario is rejected. This scenario is
represented in fig.201 and 21.
Scenario 4: In column 6 (fig.19), the total revenues have been assumed to have increased by 15% of
$485.65 billion, cost of revenues have been assumed to have increased by 9% of $365.08 billion,
operating expenses have been assumed to have increased by 17% of $93.41 billion, operating income
increases to $51.27 billion, the gross profit increases to $160.56 billion. The percent change in operating
income and gross profit are 67.1% and 16.26% respectively. In the order of preference, this is the third
most desirable scenario.
Scenario 5: In column 7 (fig.19), the total revenues have been assumed to have increased by 19% of
$485.65 billion, cost of revenues have been assumed to have increased by 10% of $365.08 billion,
operating expenses have been assumed to have decreased by 5% of $93.41 billion, operating income
increases to $87.59 billion, the gross profit increases to $176.33 billion. The percent change in operating
income and gross profit are 9.82% and 70.85% respectively. In the order of preference, this is the second
most desirable scenario.
Gross profit change %

40
30
20
10 Gross profit change %
0
1 2 3 4 5 6
-10
-20
-30
Fig. 20
operating income change %

120
100
80
60
40
operati ng i ncome
20 change %
0
-20 1 2 3 4 5 6
-40
-60
-80
Fig.21
Walmart has availed of the opportunity of promoting label / generic brand items in the US and
Europe. Ol'Roy brand pet supplies, Great Value brand grocery items, George and No Boundary brand
apparel are some of the private label brands which Walmart pomotes in its retail outlets (by offering
these products at a lower price in comparison to the corresponding national brands like Pedigree, Levis
or Borden).
Threats: While the employees of Walmart (around 2.2 million estimated in 2014) are an asset
but they can also create a negative impact on Walmart's profitability if Walmart is unable to generate
savings from it's suply chain or if the revenue growth falls below it's cost of labor. The increasing federal
minimum wage (Walmart pays $9 / hour to the new hires) and an increasing health insurance costs (for
an increasingly ageing generatio of employees) are two main otential threats which could adversely
affect Walmart's profitabilty. Besides this Target and other retailers appear to be minimizing the gap in
the everyday low pricing area. Target has been able to successfully been able to generate savings from
its supply chain and in net effect Target have been able to reduce prices on the merchandise which they
sell. Amazon , the “Walmart of internet retailing” has also been flexing its muscles in roviding a wide
assortment of products and convenience of customer shopping experiene (in the form of faster home
delivery service).
Conclusion:
Walmart has successfully metamorphosed itself from a regional retail to a leading global and US
mass merchandising / discount retailer. The key to it's success has been its core competences in
Iinformation technology and distribution. It's opportnuities are available in the international expansion
and the increase in it's internet based business via Walmart.com. Walmart has attained the distinction
of acting as a barometer of the US economy and a mirror of her society. As a leader in sustainability and
environmentally friendly business corporation Walmart is the benchmark. However, Walmart should be
continuously improving it's employer-employee relationship, treating all it's employees fairly and
without discrimination and allow it's grass root level employees to interact more easily with retail
/corporate management and these management employees shold lactively isten to their subordinates
and try to address their concerns so as to avoid negative outcomes like Betty Dukes vs.Walmart gender
discrimination class action lawsuits.
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http://finance.yahoo.com/q/is?s=WMT&annual
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Acknowledgement: The author would like to express his gratitude to Dr.Mario Hayek, Professor
of Management at Texas A & M University – Commerce for providing this author encouragement in this
project.The author also wishes to express his deep gratitude to Dr.John Humphries, Texas A & M
Systems Professor of Management and Dr.John J.Newbold, Professor of Maketing at Sam Houston State
University for inspiring this author to perform business research.
About the Author: The author has obtained BBA and MBA from Sam Houston State University
and a BS from Calcutta University. Some of the areas of author's interest are case study research of
organizations, studies in management styles, strategic human resource management etc.

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IJMSS Vol.

03 Issue-12 (December, 2015) ISSN: 2321-1784

WALMART STORES INC. - A STRATEGIC ANALYSIS

Deba Banerjee, MBA

Keywords: SWOT , PESTEL, Walmart,

Introductory Company Overview

Percent change in US retail sales

Percent change of Sales for Walmart

External Environmental Analysis

Sociocultural and demographic Analysis:

The following section consists of a macro and micro economic analysis.

Macro-economic and Micro-economic Analysis :

Year US GDP per capita Walmart Revenues

(http://dss.princeton.edu/training/Regression101.pdf#page=2) ). Here, the p

The regression equation may be formulated as follows:

Walmart Revenues = -297.85092824 + 0.0131238443 * US GDP / capita

Year Walmart Revenues per employee Walmart Revenues

Walmart revenues per employee = -364462.117960717 + 3.9897449594 Walmart

1)To be supplied 100 % by renewable energy

The following section discusses about Globalization.

Globalization and Porter's model and application:

Overview Global retailers:

Year Walmart Metro Carrefour Tesco

Year Walmart Metro Carrefour Tesco

SWOT analysis of Walmart

Scenario : Walmart's move to increase operating expenses to expand it's online

Total Revenue 485.65 558.5 582.78 607.06 631.35 679.91 728.48

Cost of Revenue 365.08 363.02 349.67 333.88 473.51 611.92 327.81

Gross Profit 120.57 195.47 233.11 273.18 157.84 67.99 400.66

Operating Expenses 93.41 139.62 174.83 212.47 252.54 305.96 364.24

Operating Income 27.16 55.84975 58.278 60.70625 -94.7018 -237.969 36.42375

-100 Operating Income

scenario involving an increase in operating expenses for online business

increase to $273.18 billion.

Total Revenue 485.65 497.79125 509.9325 534.215 558.4975 577.9235

Cost of Revenue 365.08 339.5244 330.3974 396.1118 397.9372 401.588

Gross Profit 120.57 158.26685 179.5351 138.1032 160.5603 176.3355

Operating Expenses 93.41 102.751 104.6192 107.4215 109.2897 88.7395

Operating Income 27.16 55.51585 74.9159 30.6817 51.2706 87.596

operating income change % 104.402982327 34.9450652381 -59.0451426199 67.1048214408 70.8503508834

Gross profit change % 31.2655303973 13.4382215859 -23.0773258265 16.2611003945 9.8250937498

Fig. 19 represents a scenario analysis of international expansion of Walmart. column 2

Scenario Analysis (Fig.!9): Walmart's international expansion scenarios

Gross profit change %

10 Gross profit change %

operating income change %

Datamonitor (2011), Retailing Industry Profile: Global, p1-35

Datamonitor (2014), Walmart Stores Inc. SWOT, p1-11

Freeman, R., Nakamura A., Nakamura, L., Prudhomme, M, Pyman, A (2011),

Ghazzawi,I, Palladini,M.,Martinelli-Lee, T. (2014), THE WAL-MARTSTORES, INC. AN AMERICAN DREAM

Walmart Financial statements (2015) retrieved from

Zukin,S.(1998), Urban Lifestyles: Diversity and Standardisation in Spaces of Consumption, Urban

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